Every negotiation starts with a question: “This is what we want — what can you give us?”
That’s how Asheville Assistant Attorney Patsy Meldrum sums up the first steps in working out a cable-franchise agreement with Intermedia Partners.
What’s their offer?
Start with the money — nearly $500,000 more in franchise fees, during the first few years, than the city would get under the current agreement. Add PEG — three local-content channels (one for general public use, another for education and a third for government). Then toss in a high-tech network system that would link many public buildings in the city for e-mail, data, video and telephone transmissions.
That’s the heart of the deal that Meldrum, Intermedia and consultants Rice Williams and Associates presented to Asheville City Council members, back in mid-November. They came close to adopting it on Dec. 2, before the new Council took office. “It seemed helpful to get it done with the 1995-97 Council members. They had been through much of the process,” Meldrum remarked.
But that Council hit the brakes after hearing the concerns of newly elected members and several Asheville residents.
New Council members Earl Cobb and O.T. Tomes, Vice Mayor Ed Hay and new Mayor Leni Sitnick said they needed more time to study the deal and wanted to give the public an opportunity to look it over, too.
Former Vice Mayor Chris Peterson said, flat out, that it wasn’t a good deal. And Citizens for Media Literacy Director Wally Bowen insisted there was too much at stake to enact the agreement without first taking a closer look at the details.
“Today,” says Bowen, “doing a cable franchise is not just about securing the most cable channels at the lowest cost to subscribers.” He argues that the city isn’t getting enough support from Intermedia for the new public-access channels, and that other components of their offer are weak, as well. “Are we getting our fair share?” Bowen asks.
Asheville resident and UNCA mass-communications Professor Mary Ellen Brown wonders the same thing. And she adds that the issue came before Council so unexpectedly — and right before Thanksgiving — that many people weren’t able to attend the meeting at which it was discussed. “I don’t understand why it hasn’t been open for public discussion,” she says.
Council members apparently had similar concerns. So they postponed adopting the agreement and scheduled three opportunities for reviewing it: a Jan. 20 work session, a Feb. 10 informal community meeting, and a Feb. 24 public hearing. And a group of citizens with a keen interest in public-access issues has scheduled a meeting for Jan. 14 at Pack Library.
Here’s a preview of some of the key issues up for discussion.
Clearing up a fee dispute
“Technology has changed so much since 1967,” Meldrum observes. That’s when the city set up its first — and still current — cable franchise, with Thoms Broadcasting Company, Meldrum recounts.
There were only eight channels to watch back then, and no such thing as the Internet, fiber optics, pay-per-view channels or digital television. The 1967 agreement, which eventually passed to TCI and then Intermedia, didn’t take into account such technological developments — all of which Intermedia now provides, or will soon provide, in Asheville.
More to the point, the agreement left vague, at best, the details of how much money the cable company should pay the city in franchise fees each year.
“We had some things to clear up,” Meldrum concedes. The old agreement, she explains, granted the city 6 percent of the “gross monthly service charges collected” as a franchise fee. “What does that mean?” she muses. Over the years, city officials tended to interpret the phrase as referring to all revenues, including those from sources that didn’t exist when the agreement was made: primarily, pay-per-view, premium-channel and advertising revenues.
But Intermedia General Manager Joe Haight tactfully points out that the issue of what constitutes “gross revenues … has been open to interpretation.” TCI — and, subsequently, Intermedia — construed it to mean monthly subscriber fees only. “Other revenues — pay-per-view, premier [movie] channels — were never included,” says Haight. The city could have taken the cable company to court over the issue, he notes, but it didn’t — and would probably have lost the case if it had, he asserts.
Nevertheless, says Meldrum, “There has been a perception that [the cable company] was not paying what was due. It is a matter of interpretation, however. [The cable company] had one view, and we had another.” The issue, she notes, was “often discussed” in recent years, but never resolved … until the city had a chance to renegotiate the franchise.
The city hired a consulting firm, Rice Williams and Associates, to audit TCI’s revenues and franchise-fee payments over the past three years … and find out what the city would have been paid, if the definition of gross revenues were more comprehensive and up-to-date.
The result of that audit was a negotiated “franchise settlement” of $150,000, according to city staff’s summary of the proposed agreement.
Former Vice Mayor Chris Peterson, recalling years of trying to clear up the fee dispute, referred to that figure as the payment of “delinquent fees” when he urged Council to delay adopting the franchise agreement.
But Haight counters, “There aren’t any delinquent [franchise] fees. Never have been. [The cable company] always paid its fee on time, as per our understanding. … The only thing that was in contention was the calculation of that fee.”
Is the $150,000 a sort of good-faith gesture on Intermedia’s part, then? Intermedia remains a separately managed company from TCI, the former franchise-holder — although TCI is one of several investors in the company.
“Yes, that’s a fair way to put it,” Haight replies. “We’ve been negotiating [this issue] off and on for years. … However, we thought of it as an opportunity for the city to recoup some money. This is just one part of the [franchise] package.”
The new package explicitly spells out what constitutes gross revenues, and sets the fee at 5 percent, as mandated by recent Federal Communications Commission regulations.
Public access and other extras
However you look at the fee settlement, it may have given the city a little leverage on some other key ingredients in the cable deal, such as new public-access channels and a data/video/telephone network for public buildings like City Hall and the County Courthouse.
Intermedia agreed to provide the new public-access channels, and to toss in $200,000 worth of support, to be paid over the first two years of the agreement. The payments can be made in either cash or “in-kind” services, such as equipment, studio space or technical assistance. Then, starting in the eighth year of the franchise agreement, a regular yearly allocation of about $36,000 will provide ongoing support for the channels.
It’s an improvement from the 1967 agreement, which created just one public-access channel — without any equipment or programming funds. But is it a good deal?
“Too many of the terms [of the franchise] appear to have been defined by the cable company,” Bowen asserts. He points out that the access-channel cash will come from a 15-cent charge added to each cable subscriber’s bill. “The negotiating strategy of the cable company is that anything [they] give us is passed on to the subscriber. … The cable operator [does] have the option of passing costs on to the subscriber … [although] nothing in federal law mandates this,” he continues.
Brown agrees. “The things [Intermedia] is supposedly giving the city, they’re not. They’re getting it back from the subscriber.” She argues that Intermedia ought to provide more financial support for the PEG channels — without passing the costs on to subscribers. “Look at what [Asheville] is giving them: a practical monopoly on [cable service],” she points out.
And, based on her own experience with video production, she attests, “You’re lucky if $36,000 is going to pay your electric bill.”
Commenting on the highly lucrative telecommunications market these days — from advertising, pay-per-view, premium and Internet services — Asheville resident Scott Barber says, “There are some things [Intermedia] should do in return for the opportunity to make bucket-loads of money in Asheville. But that’s just me.” Barber, who was involved with franchise talks in Chapel Hill in recent years and observes, adds that city officials shouldn’t “just buy the line that Intermedia can’t afford it. The city needs to figure out a way to be tough in the negotiations.”
Cable companies, says Barber, “don’t make any money on public-access channels, so they have no incentive for supporting it.” But providing public-access channels, in this information age, “is vital to democracy in the 21st century,” he insists. “Much of what we see on television these days is produced by large corporate interests. It’s too expensive for the average citizen to [produce a show for television], but we need a way for people to communicate with each other with this technology. … But to make it work, it needs to be well-staffed, have adequate facilities and training, and money for equipment and maintenance,” he says.
Asheville resident Nelda Holder agrees. “That $36,000 a year is not enough money, given the size of Asheville, for funding public access.” Before moving here three years ago, she worked as director of a public-access channel in Middlebury, Vt., a town of 7,000. Town officials support its public-access channel by allocating to it a percentage of the annual franchise fee derived from the cable company, supplemented by privately raised funds, Holder reports. The channel is controlled by a nonprofit organization whose board of directors is made up of town officials and residents — not cable-company employees.
The current annual operating budget for Middlebury’s public-access channel is $45,000, which funds a part-time engineer, a director and equipment. Studio space was donated by the public library, and volunteers do most of the video production and other work, she notes, adding, “You need more than money to run a public-access channel. You need community support.”
More up-front money from Intermedia, Holder observes, would help get the new PEG channels off the ground, but the effort also needs people to make it work.
Local dentist Phil Davis, who passionately urged Council to delay a decision on Dec. 2, tries to explain why PEG is so important — and why residents like him are ready to volunteer. “Local content: That’s the key word. You can’t get that on regular cable television,” he says. Davis talks about the importance of giving Asheville-area children local heroes — local kids and adults, local events to watch. “That’s how they learn and grow, by identifying with something that’s possible. It lets them see that they can be special, too, rather than just seeing what people thousands of miles away are doing.”
Local adults could watch their kids on PEG, too, if the city were able to expand its coverage of school events, Davis argues. And the PEG channels could be a way to show off the community, spotlighting local crafts, artists, architects, jobs, events, industries, colleges and people. “Telecommunications, these days, is infrastructure — just as much as roads, railways, sewer and water lines have been in the past. It’s about economic development and community development,” he explains.
“I have a lot of respect for City Council and staff, who have been negotiating this contract for so long. But I would like for them to give the people they represent a chance,” continues Davis. Like Bowen, Brown and Holder, he stresses the importance of giving Asheville residents more direct control over the PEG channels, as well as getting better funding from Intermedia. “We could set up a rotating committee to … review and approve programming,” he suggests.
“That’s fine and good. We’d like to have something like that,” Haight responds. “It’s not that [Intermedia is] trying to control the [PEG] channels. We’ve already been doing it since the 1980s,” he adds, referring to Channel 10, the city’s current public-access channel.
Channel 10 provides some Asheville City Schools programming, primarily sports events at Asheville High. It also carries advertising, such as real-estate and auto ads, which pay for the channel’s operation — a setup that would continue on the three new PEG channels, Haight envisions. “We’ve never had to ask the city for a penny for [operating] that channel. With this new franchise agreement, I see Channel 10 expanding, being divided into three channels. We’ve got the [programming] product that would be on those channels,” he continues, mentioning the coverage of City Council and county Board of Commissioners meetings, local artists, plus programs sponsored by local churches, such as Sunday-service coverage.
The I-net and compromise
What about the rest of the franchise proposal?
One key component the city asked for is the creation of an I-net, an institutional network system that would link public buildings for voice, data and video transmission.
Recalling the confusion between I-net and Internet that came up at Council’s Dec. 2 meeting, Haight explains, “The I-net and cable TV are two separate things. Every public building that we pass [with cable lines] gets a free cable drop, and — starting in late spring — each and every school will get a modem that will connect them to the Internet via that cable line.”
The I-net, he continues, is different. It’s a closed-circuit network that would link public buildings such as the Asheville Police Department, City Hall, the County Courthouse, Asheville High School, and others specified in a list included in the contract. That link would enable the city and each location on the link to exchange data, hold video conferences, send e-mail, and make telephone calls, Haight explains.
The ability to use the I-net for telephone service alone “would save the city megabucks,” Haight figures.
But Bowen questions why elementary schools, public libraries, UNCA and the hospitals are not included on the I-net. This kind of technology, he asserts, “is what coal was to the industries of the Ohio Valley. It’s a precious resource that allows the transfer of data at high speeds and in great quantities. It’s one of the building blocks for a vibrant electronic community.”
Haight doesn’t disagree with that. He says the city can ask for more I-net connections down the road. “The city has the option of including the elementary schools,” he says.
But for now, the approximately $400,000 cost of installing it in a handful of public buildings is being split, 60-40, between Intermedia and cable subscribers: During the first seven years of the franchise agreement, a 20-cents charge will be added to each subscriber’s bill, to cover 40 percent of the installation cost. Intermedia, says Haight, will absorb the rest as part of its current upgrade and construction costs.
That just covers the cost of external connections linking each building: The city will have to pay for installing the equipment needed in each building. City Manager Jim Westbrook suggested that much of that cost — as yet unestimated — could come from the city’s telephone budget.
“You have to make some compromises,” Meldrum argues. “It’s like anything else. We’d like to have more equipment and more financial support, but those costs could be passed on to subscribers.”
In its initial request to Intermedia, the city did, in fact, seek a more extensive I-net, which would have included all city schools, UNCA, A-B Tech and the hospitals. The trimmed-down list is the result of several months of negotiating, Meldrum explains, and includes the top-priority connections, such as those between the fire and police stations.
Bowen retorts that the city ought to bargain harder. “The closer we get to the year 2002 — the year the current franchise agreement expires — the stronger the city’s negotiating position becomes,” he declares, adding, “We can decide to take a longer look at the proposal.” Bowen also mentions other areas of concern, such as the length of the proposed contract (a 12-year agreement, in addition to the final four years of the existing contract, for a total of nearly 17 years).
Barber notes that, in his experience, such agreements more typically run for only five to seven years.
Bowen also questions the proposed contract’s “state-of-the-art clause,” which would require Intermedia to keep Asheville’s system as technologically up-to-date as cable systems in other Southeast cities of similar size served by Intermedia. But Bowen, Holder, Davis and Brown all assert that Asheville’s system shouldn’t be limited by comparisons to other mid-sized cities that Intermedia serves. “Asheville is a special place,” says Davis. “Keep us up-to-date with Atlanta, Charlotte and other regional centers.”
“We’re under no obligation to do anything, and neither is the city,” Haight responds. Just the same, he notes, “If we’re doing something new in another town, we’ll want to do it in Asheville. We’d want to do it, regardless of the franchise, if it made good business sense.”
He also stresses that Intermedia and the city are not required to start negotiating the new franchise until 1999. “But with [Intermedia’s] fiber-optics upgrade under way and new technologies coming, it behooves us to negotiate [now].”
Haight says he looks forward to the scheduled public meetings and Council’s work session. “The worst thing, these days, is misinformation,” he reflects, offering to chat with anyone who has questions about cable TV, the franchise agreement, and such details as how many new channels Intermedia will be offering when it goes digital this spring.
The new system — part of it is already operating, in some neighborhoods — runs at 550 megahertz. That translates into nearly 80 analog channels (the old-fashioned kind). Using new technology, made possible by Intermedia’s new hair-thin fiber-optics lines, 14 digital channels can fit in the space of one analog channel, Haight explains. Just a few years ago, the limit was just six digital channels for every analog.
That technological advance, says Haight, is one reason Intermedia opted to create a 550-MHz system instead of a 750-MHz one, as the city had requested more than two years ago. “Technology is changing so fast, I can put 14 channels where I had just one before,” says Haight enthusiastically.
Besides, more channels also mean more revenue … for Intermedia and the city.
During a customer luncheon in late November, Asheville resident Wally Begg asked Haight how much it would cost him to sign up for all the new digital services and channels Intermedia plans to offer by May. “About $100,” Haight replied.
“Oh, come on, Joe!” exclaimed Begg, a World War II veteran who says he has no interest in all those pay-per-view channels, but that he tapes just about every program on the Discover channel.
“That’s if you ordered everything,” Haight assured him — multiple movie channels, pay-per-view, sports, digital music, Internet access … and the list goes on. So does the technology: Haight points out that high-definition television is on the way, with images so realistic they give you the feel of 3-D.